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DE RUEHPE #0826/01 0782318
ZNR UUUUU ZZH
R 192318Z MAR 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 4470
INFO RUEHBK/AMEMBASSY BANGKOK 0663
RUEHBJ/AMEMBASSY BEIJING 0391
RUEHSW/AMEMBASSY BERN 0454
RUEHBO/AMEMBASSY BOGOTA 4467
RUEHCV/AMEMBASSY CARACAS 0228
RUEHLP/AMEMBASSY LA PAZ MAR MEXICO 3481
RUEHNY/AMEMBASSY OSLO 0150
RUEHOT/AMEMBASSY OTTAWA 3071
RUEHQT/AMEMBASSY QUITO 1091
RUEHRK/AMEMBASSY REYKJAVIK 0001
RUEHSG/AMEMBASSY SANTIAGO 1178
RUEHGP/AMEMBASSY SINGAPORE 0203
RUEHBS/USEU BRUSSELS

UNCLAS LIMA 000826 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECIN EINV APECO PE BL CA CI CH CO EC
IC, LS, MX, NO, SN, SZ, TH, VE 
SUBJECT: PERU'S FERVOUR FOR GLOBAL TRADE MARCHES FORWARD 
 
REF: 06 LIMA 3384 
 
¶1. (SBU) SUMMARY:  While Peru waits for the US Congress to 
consider the U.S.-Peru Trade Promotion Agreement (PTPA), the 
GOP continues to discuss and engage in trade negotiations 
with numerous other countries.  Peru recently completed an 
expanded trade agreement with Chile in October 2006; will 
finish negotiations with Singapore within a month; has 
ongoing talks with Mexico, the European Free Trade 
Association (EFTA) countries, and Thailand; and will start 
negotiations with Canada this month.  Peru has formed a group 
with China to study the feasibility of an FTA.  More 
complicated is Peru's strong interest in an agreement with 
the European Union; the EU's requirement that an agreement be 
with the Andean Community and the Community's own 
difficulties in reaching consensus have slowed progress 
considerably.  Trade agreement negotiations under President 
Garcia, as with the previous Toledo Administration, 
demonstrate Peru's enthusiasm and commitment to expanding 
global trade as an engine for domestic economic development. 
End Summary. 
 
USING APEC TO EXPAND IN ASIA 
---------------------------- 
¶2. (SBU) Peru expects to conclude a trade agreement with 
Singapore by the end of March, according to Vice Minister 
Luis Alonso Garcia.  The only remaining hurdle is the chapter 
on services.  He told us recently that the GOP's strategy was 
to establish a "hub" in Asia with a country that it believes 
is a trade leader and sets an example for a competitive 
market that has benefited from the transfer of technology. 
Elsewhere in Southeast Asia, the GOP is negotiating a 
tariff-only agreement with Thailand to liberalize duties on 
75 percent of the goods within both countries' schedules. 
The Thai agreement is currently in "stand by" status as the 
GOP awaits a response from the Thais.  We were told privately 
by ministry contacts that the changes in the Thai government 
had delayed their talks.  With Peru hosting the Asia-Pacific 
Economic Cooperation (APEC) forum in 2008, the government has 
committed itself to using APEC to expand its market access to 
as many of the 20 other member economies as possible. 
 
OFFERING A BROADER BASKET OF GOODS TO CHINA 
------------------------------------------- 
¶3. (U) With China as Peru's number two trading partner, an 
agreement with the PRC has been touted by many in and outside 
of Peru's government.  The GOP and China established a joint 
study group to look at the feasibility of an FTA.  Trade 
officials hope to start the actual negotiations in 2008 and 
to have made significant progress by the November 2008 APEC 
Leaders' meeting.  In 2006, Peruvian exports to China totaled 
$2.27 billion, an increase of 21 percent from the previous 
year.  Though the impact of Peruvian exports in China is 
minimal and primarily consists of basic minerals and metals 
such as copper, zinc, and molybdenum, the GOP wants to expand 
its mix of exports to China by exporting value-added products 
such as off-season fruits and vegetables.  In this regard, 
Peru is looking towards Chile as a model, as the Chileans 
already have an FTA with China.  Peru recently started 
exporting table grapes to China, but the grapes carry a 16 
percent tariff, while Chilean grapes enter China tariff-free. 
 Peru wants to compete with Chile on pure market terms -- a 
zero percent tariff basis -- in order to gain a larger market 
share in China. 
 
CANADA COMING UP 
---------------- 
¶4. (SBU) In February, Canadian and Peruvian negotiators 
agreed to move forward with FTA negotiations, and Vice 
Minister of Trade Luis Alonso Garcia told us that 
negotiations would begin in the coming weeks.  Last year, the 
Canadians had told us that their original strategy had been 
to negotiate with the Andean Community (CAN) as a bloc. 
However, the CAN's difficulties in agreeing internally on 
even such simple things as a common external tariff presented 
considerable obstacles.  Garcia told us that the GOP fully 
expected the FTA with Canada to be completed within six 
months.  Though the Canadians want to model an agreement with 
Peru on the PTPA with the USG, the Peruvians told us that 
they expect talks with the Canadians to be tougher than with 
the United States. 
 
LANDING LATIN AMERICAN PARTNERS 
------------------------------- 
¶5. (U) Peru is pursuing an agreement with Mexico but 
anticipates that this will take longer as the Mexican 
government tends to use its market size as a bargaining chip 
with the GOP.  As previously reported (see reftel), the GOP 
negotiated tariff reductions with Chile in 1998 and then 
conducted six rounds of trade talks over 2005 and 2006 to 
broaden the previous agreement into a nearly full-fledged 
trade agreement.  This agreement, styled as an "Economic 
Complementation Agreement" (or ACE in Spanish) represents 
further evidence of Peru's willingness to engage economically 
with its southern neighbor, with whom it has had a history of 
rivalry. 
 
REACHING ACROSS THE ATLANTIC 
---------------------------- 
¶6. (SBU) The GOP is also negotiating with the EFTA -- 
Iceland, Liechtenstein, Norway, and Switzerland.  Besides 
broadening Peru's access to European markets, trade with 
these countries would pair Peru with nations that are highly 
ranked on measures of wealth, education, and heath.  As noted 
by Eduardo Ferreyros, the Trade Ministry's General FTA 
Coordinator, completing agreements with higher developed 
countries is a more dynamic strategy for Peru in terms of 
attracting investment, technology, and business practices. 
 
¶7. (SBU) The European Union (EU) and the Andean Community 
(CAN) met in early March to begin discussions on a trade 
agreement.  According to Cristian Espinosa, General Director 
of CAN, the EU prefers a trade bloc to trade bloc agreement 
over deals with individual CAN countries (current members are 
Peru, Colombia, Bolivia, and Ecuador), and is willing to wait 
for CAN members to establish common negotiating positions. 
The CAN countries have widely diverging external tariffs, 
with Colombian tariffs higher than most. 
 
THE ANDEANS:  CAN THEY GET TO YES? 
---------------------------------- 
¶8. (SBU) Progress for such an agreement is moving at a slow 
pace due to current difficulties among the members of CAN in 
getting to consensus on trade.  EU Mission contacts in Lima 
have admitted to us privately that they knew it would be 
difficult for CAN to move forward on an agreement with the 
EU, given the divergent trade policy practices.  But there 
are other factors as well and the problems may, in fact, be 
deeper, given the evolution in Ecuador and Bolivia's 
politics.  High-level Foreign Ministry contacts report 
anecdotal evidence that both Ecuador and Bolivia have begun 
to express distinctly different philosophies on trade and the 
value of open economies in recent meetings, putting them at 
odds with Peru's trade strategy.  While in Europe during this 
month, Peru's Foreign Minister, Jose Antonio Garcia Belaunde, 
noted publicly that Bolivia wants to raise tariffs on imports 
and that Bolivia and Ecuador both expressed their preference 
for only a limited agreement with the EU. 
 
COMMENT 
------- 
¶9. (SBU) Peru is reaching out to Latin neighbors, NAFTA 
partners, and APEC partners to expand trade and attract 
investment.  The GOP's active engagement in free trade 
negotiations with multiple partners clearly indicates the 
country's continued commitment to market integration with the 
global economy, and an element of policy continuation from 
the Toledo Administration.  The government views its trade 
strategy as (1) an opportunity for increased economic growth 
and (2) a way to engage with more developed countries that 
will stimulate domestic economic and social reforms.  Last 
year's debate over the PTPA served to focus interest in Peru 
on the potential for small and medium-sized exporters as one 
way to deliver the Garcia administration's goals on poverty 
reduction.  Through this strategy, and others, the government 
continues to tout exports and trade as opportunities to 
reduce poverty by encouraging entrepreneurship among lower 
classes, reducing bureaucracy, and imposing transparency and 
the rule of law. 
STRUBLE